Dr. Bonnie-Jeanne MacDonald is the director of financial security research at the National Institute on Ageing (NIA), Ryerson University(Toronto). She is also a Fellow of the Canadian Institute of Actuaries (FCIA) and the resident scholar at Eckler Ltd. Her research focuses on the policies and practices needed to address the multiple challenges and opportunities presented by Canada’s aging population. Bringing together leading industry experts and building on academic best practices coupled with innovative ideas, Dr. MacDonald’s work aims to improve retirement financial security for Canadians through practical insights, industry innovations and government solutions. This interview dives into Canada’s current and future retirement challenges:
- We hear a lot in the media about the “retirement crisis” that Canada is facing. Do you think that’s an overstatement? Should we be concerned?
Canadians are unknowingly facing a perfect storm when it comes to long-term financial security in retirement. The trend away from workplace pension plans coupled with the ongoing historically low interest rate environment will result in reduced retirement income for many.
But while income is going down, retirement costs are going up. People are living longer than ever before, but family size has decreased to a historical low. Adult children have traditionally provided most of the care for seniors in their homes. Without that support, retiring Canadians will need to finance a longer retirement time horizon with less money and higher expenses.
Add to all this our severely underfunded public home care and long-term care programs. Our ageing population is going to squeeze the public purse and those programs even further. It’s a big problem that we need to tackle now, and that’s what we do at the National Institute on Ageing (NIA) at Ryerson University. Our focus is on improving the policies and practices needed to address the challenges and opportunities presented by Canada’s ageing population
2. Do you have any recommendations for Canadians to maximize their retirement income?
The economic shocks of COVID-19 have provided a grim reminder of the value of secure retirement income and the stress that comes from uncertain, unpredictable financial markets—not to mention the consequences of being vulnerable at advanced ages. Fortunately, a great solution already exists: delaying Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits for as long as possible.
In December, the NIA and FP Canada released a paper I authored. The goal of that paper was to explain the true value of delaying CPP benefits, understand why more people aren’t doing it and propose how we can help retiring Canadians make more informed decisions on when to start their CPP/QPP benefits.
In my research, I have found that delaying CPP is the most misunderstood and underused decumulation solution out there—yet there really is no better financial strategy when it comes to getting secure pension income. Canadians don’t have to take CPP right away and can wait until age 70, which would more than double their lifetime worry-free pension. But only 1% of Canadians take advantage of this option.
To give you a sense of what that means: The average Canadian is losing about $100,000 of lifetime income by taking CPP/QPP benefits at age 60 instead of 70! That could make a huge difference for someone in their 80s or 90s who wants to age in their own home
3. What role do (or should) plan sponsors play in helping ensure Canadians are financially prepared for retirement?
Plan sponsors play a critical role in addressing the many challenges presented by Canada’s ageing population. It can be as simple as helping their members understand their option to delay taking CPP/QPP benefits. When it comes to communication, plan sponsors have a major advantage: Their members trust them and consider them a source of unbiased information. Having them share information on the CPP/QPP uptake decision can be very powerful.
Helping members get the most out of their CPP/QPP benefits will not only give them retirement income security, but it will also enable them to spend their savings more confidently in retirement. And that’s really the goal: giving older Canadians the freedom and joy of spending their savings, knowing their future is taken care of.
But time is ticking by: With each coming year, as Baby Boomers reach retirement eligibility at age 60, more and more are going to be struggling with this important financial decision that will affect them for the rest of their lives. It’s up to us—and the industry at large—to ensure they have the information they need to make better decisions.
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